What is abnormal loss? Accounting entries

Abnormal loss

Abnormal loss may arises, due to pilferage, theft, fire, excessive breakage and negligence etc. This loss is not natural and can be avoided with proper care. In case of abnormal loss, value of stock unsold is not inflated. Abnormal loss is calculated after taking into consideration proportionate expenses incurred on it (similar to valuation of consignment closing stock). The same is credited to consignment Account and debited to abnormal loss Account. If goods are insured and claim is accepted by insurance company, then 'Insurance claim'  account will be debited by the amount of claim accepted, the portion of loss not accepted as claim will be debited to profit and loss account and  'abnormal loss' account will be credited.

The journal entries are :

(1) When goods destroyed were not insured

      (a) Abnormal loss  A/c                        Dr

                   To consignment A/c

      (b)  Profit and loss  A/c                       Dr

                    To Abnormal loss  A/c

(2) When goods destroyed were insured

       (a)  Abnormal loss   A/c                     Dr

                     To consignment A/c  

       (b)  Insurance Claim A/c                  Dr

               Profit and loss  A/c                     Dr

                       To Abnormal loss A/c